Sunoco holders will receive about $50.13 a share,
consisting of $25 in cash and 0.5245 common units of Energy
Transfer, according to a joint statement today. Dallas-based
Energy Transfer is paying a 23 percent premium above the April
27 closing price for Sunoco.

Sunoco, based in Philadelphia, has been shutting or selling
its refineries and said in September it was considering a
possible sale.Energy Transfer Chief Executive Officer and
Chairman Kelcy Warren has been trying to transform the company
from a regional gas shipper in Texas to a national logistics
operation that handles oil, refined products and natural gas
liquids.

“As a result of the diversification this transaction
provides, we’ll have repositioned ourselves from being almost a
pure play natural-gas pipeline company to a much broader more
diversified enterprise,” Warren said on a conference call
today. The company is looking for opportunities to switch
underutilized gas pipelines to oil, he said.

The purchase adds 4,900 Sunoco-branded retail fueling
stations in the U.S. as well as its 32.4 percent share of Sunoco
Logistics Partners LP’s common units. The partnership, which
Sunoco controls through its general partner, owns 7,900 miles
(12,700 kilometers) of oil pipelines, according to the
statement.

Commodities Mix

The transaction not only diversifies Energy Transfer’s mix
of commodities, it expands its geographic footprint, said Darren
Horowitz, an analyst with Raymond James & Associates Inc. in
Houston.

“It opens the door for greater growth,” Horowitz said in
a telephone interview today. He rates Energy Transfer at market
perform, on par with its peers, and doesn’t own any of its
units.

Sunoco gained 20 percent to $49.29 at the close in New
York. Energy Transfer Partners rose 3.6 percent to $49.63.

When the purchase is complete, Energy Transfer expects to
get about 30 percent of its cash flow from “heavier
hydrocarbons” such as oil, refined fuels and natural gas
liquids, like propane and butane, Warren said in the statement.
The profit for shipping crude on pipelines is better than gas,
he said.

Oil Pipelines

Energy Transfer is already considering switching its Texoma
gas pipeline in East Texas to oil. The pipeline connects to
Sunoco’s oil terminal at Nederland, Texas, Warren said in a
phone interview today. Energy Transfer may also convert part of
the Trunkline system, which runs from the Gulf Coast to the
Chicago area and Michigan, to oil from gas, he said.

Sunoco’s retail business is “not core” for Energy
Transfer, Warren said. The retail units may be put into a
master-limited partnership, Sunoco CEO Brian MacDonald said on
the call.

Exiting Refining

Sunoco, an owner of oil refineries since 1895, announced
plans in September to exit that business after a $1.7 billion
loss in 2011 as the profit margin on producing fuel shrank to
the lowest point since 2009, according to data compiled by
Bloomberg. It shuttered two plants and now operates one refinery
in Philadelphia.

Sunoco said last week that it was in talks with Carlyle
Group LP to take over operations at the Philadelphia refinery,
which it had previously said it will close. The Carlyle talks
will continue, Sunoco’s MacDonald said.

Sunoco’s exit from refining will be completed, according to
the statement.

Energy Transfer’s $1 billion of 6.5 percent senior
unsecured notes maturing in February 2042 slumped 4.7 cents to
102.7 on the dollar to yield 6.3 percent, the highest ever, at
11:58 a.m. in New York, according to Trace, the bond-price
reporting system of the Financial Industry Regulatory Authority.
That’s the biggest fall since the bonds started trading on Jan.
11.

Transaction Premium

The transaction, supported by both boards, is expected to
close in the second half and needs approval of shareholders and
regulators, according to the statement. The companies anticipate
merger savings of $70 million and the deal includes a $225
million breakup fee.

Energy Transfer’s 23 percent premium for Sunoco is less
than the 48 percent average premium of 97 deals in the pipeline
sector in North America in the past 12 months, according to data
compiled by Bloomberg.